You must have seen the headlines: “Toll Brothers Cuts Profit Forecast” (Reuters) and “Big Builder Sees Uncertainty” (New York Post) were typical ones. Although Toll Brothers, the nation’s biggest luxury production home builder, reaped record profits in 2005, its crystal ball apparently forecasts a cloudier climate in 2006. In some markets, demand for Toll’s houses was already down by year’s end. In Northern Virginia, for example, its sales dropped 28 percent in October 2005 compared to a year earlier, according to The Washington Post.
While many custom builders work in Toll-free markets and many of you have business booked for six months, a year, and more ahead, you should pay attention to the forecasts of Toll and other big builders who see demand falling. If they’re right, you could see a slump in your own business. But, more ominously, industry experts say you also could see Toll or other big builders try to grow business in a down market by taking market share from small, independent builders, like you.
How to protect yourself? In 1998 we ran a feature titled “Taking on Toll” that was a kind of survival guide for custom builders who found themselves competing with the big luxury home builder. The lessons from that piece still apply, and they’re good ideas even if you aren’t facing a 500-pound gorilla. Here’s a brief recap:
If you want an idea for how to level the playing field with big competitors, read the story on Custom Builders USA. It’s a new company designed to give small builders the kind of bargaining power with suppliers that Toll Brothers enjoys.
